Filling the void
Published 8:41 am Wednesday, April 10, 2013
As state leaders mull over the idea of revamping North Carolina’s tax system, municipalities from Manteo to Murphy and all points in between are rallying in opposition.
Of all the proposals currently being considered within the walls of the General Assembly in Raleigh, two stick out like a sore thumb in the eyes of towns and cities across the Tar Heel State.
State Senator Andrew Brock (R-Davie County) has introduced SB 363, legislation that would eliminate the franchise fees levied by municipalities on companies that provide power, water, cable TV and sewage services.
Meanwhile, SB 394 is aimed to abolish the privilege license taxes that municipalities charge for businesses to operate. That bill was introduced by Senator Daniel Clodfelter, a Democrat representing Charlotte.
Both proposals are being met with opposition across the state, including towns here in the Roanoke-Chowan region.
As the manager of the local area’s largest municipality, Ahoskie’s Tony Hammond said eliminating these two specific taxes would have a significant impact on the town.
“We’re looking at eight cents on our tax rate if those two sources of revenue are eliminated from our annual budget,” Hammond said.
He said Ahoskie generates approximately $150,000 annually from the privilege license tax, assessed on businesses based on its particular type of operation as well as gross sales for retail outlets.
Currently, Ahoskie’s revenue stream includes an annual assessment of $75,000 in franchise fees.
“Combine those two and we’re looking at a hit well in excess of $200,000,” Hammond said. “That’s a lot of money for a small town like ours to replace. What we don’t want to do, especially in this tough economy, is to put an additional burden on our citizens by raising the tax rate to cover those losses.”
Hammond said he has been in contact with administrators in several other cities and towns, and all are in opposition to these two Senate bills.
“I’ve prepared a resolution for the Town Council to consider at their Tuesday (April 9) meeting that, if approved, we’ll forward to the state in our effort to oppose these two particular Senate bills,” Hammond said.
Over in Conway, Town Administrator Nancy Jenkins said losing the franchise tax would result in a $58,000 loss.
“That’s a lot of money when you take into consideration that our entire annual operating budget is only $544,000,” Jenkins noted. “That’s a big hole for us to fill; that’s a big impact on our budget.”
Jenkins said Conway’s current tax rate of 44 cents (per $100 of valuation) would have to increase dramatically if that particular source of revenue was used to cover the possible loss of franchise fees.
“We would have to increase our tax rate by 12 cents just to get us back to where our budget is now with the franchise tax as a stream of revenue,” she stated. “I’m certain that our citizens here do not want to pay 12 cents more on their taxes.”
Jenkins added that the Conway Town Commissioners may consider drafting a resolution at their next scheduled meeting (May 7) in opposition to the two Senate bills.
As a small town without many businesses, Jenkins said the privilege license only generates $30 to $40 per year.
Windsor, the largest municipality in Bertie County, would see its property tax rate double if town officials were forced to use that route to replace a loss of the utility franchise fee.
“I support the ongoing effort by our state officials in regards to updating North Carolina’s tax system, but small towns such as Windsor cannot afford to absorb a big hit financially,” said Town Administrator Allen Castelloe. “We can’t stand to lose revenue, no matter from what source is generating that revenue, especially in a tight budget.”
Castelloe said the utility franchise fee generates $182,000 annually for the town.
“We’re already operating on a lean budget, there’s no where to cut if that $182,000 goes away,” he said.
Windsor’s General Fund budget for the current fiscal year is a shade over $2 million. A penny on its tax rate (currently at 14.3 cents per $100 of property value) generates $12,000. Castelloe said using that stream of revenue to potentially replace the loss of utility franchise fees would result in a 15-cent tax hike.
“That would double our existing tax rate, one that we’ve worked hard to hold as low as possible over the years,” he stressed. “We take pride in the fact that we’ve been able to operate the town’s services at the lowest cost possible to our citizens. We’ve been able to do that by being very efficient in spending taxpayer’s money and still being able to give them great services at a very reasonable rate. A tax hike, more than double our existing rate, would not be received very well here.”
Castelloe added that the town of Windsor only generates $3,000 annually on privilege license fees.
“We use it as a means to ensure that the businesses in our town are simply living up to what they say they are in business for. It gives us a basic record of the general businesses in Windsor. It’s not a money-making fee for the town,” he stated.
According to information provided by the North Carolina League of Municipalities, if these particular Senate bills become law, towns and cities across the state would lose in excess of $300 million in annual revenue.
North Carolina’s franchise tax is one of the oldest on the books, according to www.ncleg.net. It originated in 1849 as a tax on the capital stock of a corporation. The current tax rate of $1.50 per $1,000 of taxable assets was established in 1933.
North Carolina has over 700 privilege license requirements for certain types of businesses. As an example, Ahoskie charges a fee based on the annual gross receipts of a qualifying business, to include: $50 for the first $15,000 plus 50 cents for each additional $1,000 for service establishments, retail merchant, and manufacturer. For a wholesale merchant based in Ahoskie, they pay $50 for the first $100,000 in annual gross receipts plus 50 cents for each additional $1,000.